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Rowan Turrall
Rowan Turrall,
Admissibility of without prejudice negotiations as an aid to construction
04 February 2011

The 'Without Prejudice' rule

The without prejudice rule protects statements made in the course of without prejudice negotiations from being admissible in evidence. The rule applies to all negotiations genuinely aimed at settlement whether oral or in writing.

Exceptions to the rule exist and in this and subsequent articles we shall be exploring those exceptions in more detail.

Case: Oceanbulk Shipping & Trading SA v TMT Asia Limited

The Supreme Court was required to consider whether a new exception to the rule should be permitted in the case of Oceanbulk Shipping & Trading SA v TMT Asia Limited [2010] UKSC44. Delivering the leading judgment Lord Clarke considered the question:

“Whether facts which (a) are communicated between the parties in the course of without prejudice negotiations and (b) would, but for the without prejudice rule, be admissible as part of the factual matrix or surrounding circumstances as an aid to construction of an agreement which results from the negotiations, should be admissible by way of exception to the without prejudice rule.”

In the Oceanbulk case the parties had concluded a settlement agreement following negotiations which took place partly in writing and partly during two settlement meetings. Neither party sought to dispute the existence or the terms of the settlement agreement but there was a dispute about the true construction of one of the terms of the settlement. The court therefore had to consider whether anything which had been written or said in the course of the without prejudice negotiations could be referred to as an aid to the interpretation of the settlement agreement.

The Decision

At first instance the judge held that the evidence was admissible notwithstanding that the communications in question were without prejudice. The Court of Appeal (by a 2 to 1 majority) overturned the trial judge and found that the evidence was not admissible. The issue was therefore appealed to the Supreme Court.

The Supreme Court Appeal

Lord Clarke considered Lord Hoffman’s decision in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 on contractual interpretation. In that case the House of Lords decided that a contract should be construed taking into account what a reasonable person would understand the parties using the language in the contract to have meant having available to them all the background knowledge that was available to the parties. He then decided that the process of interpretation should be the same whether or not the objective facts which formed the background knowledge were communicated in the course of without prejudice negotiations.

The without prejudice communications are therefore now admissible when the court is considering a submission “that the factual matrix relevant to the true construction of a settlement agreement includes evidence of an objective fact communicated in the course of such negotiations.” However, Lord Clarke made it clear that whilst he was recognising a further exception to the without prejudice rule he did not intend to encourage the admission of evidence of pre-contractual negotiations (which remain inadmissible in construing an agreement).

Practice Points

It goes without saying that parties should record the terms of any settlement accurately but in cases where a dispute arises over the meaning of a clause then the factual matrix which the court can consider is now wider than previously thought.

For more information about the issues in this article to find out more about how the Dispute Resolution team can help you please contact Rowan Turrall on 0118 952 7206 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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